Third of top 200 failing on governance
There have been renewed calls for the Government and the regulators to tighten up the governance of director and executive share trading in the wake of new research suggesting an increasing number of company directors are failing to exercise effective governance.
The Regnan research investigated 3,255 share trades by S&P/ASX 200 company directors during the 12 months ended September 30, 2007, and revealed declining governance standards for director and executive share trading at many of Australia’s largest listed companies.
The research found that active director share trading in the weeks prior to profit announcements and upgrades increased from a previous study released in 2005.
It found that there had also been a rise in the number of directors actively trading company shares in the period after books-close and prior to public release of financial results.
Commenting on the findings, Regnan managing director Erik Mather said the results suggested that investors were justified in being both alert and alarmed about the lack of governance of director and executive share trading.
“The way some company directors choose to trade their company shares clearly invites the perception of insider trading,” he said.
The key findings of the research were:
• that more than a third of Australia’s 200 largest companies failed to comply with the Corporations Act — notifying changes in directors’ interests more than 14 calendar days after the event;
• nearly half of Australia’s 200 largest listed companies breached the Listing Rules of the Australian Securities Exchange — notifying the market of director trades more than five business days after the event;
• directors of 32 of Australia’s 200 largest listed companies actively purchased shares within eight weeks prior to a material earnings upgrade or takeover announcement — a 40 per cent increase over 2004; and
• directors of 23 of Australia’s 200 largest listed companies actively traded shares during the period between books-close and results release — a 15 per cent increase over the 2005 study.
AUTHOR
Mike Taylor
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